UNECA/UNSD Regional Workshop
November 2005
Military Weapon Systems as Fixed Assets
UN STATISTICS DIVISION
Economic Statistics Branch
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Current treatment in 1993 SNA

Military assets are distinguished into two
types:

Expenditure on assets such as roads,
schools, computers, etc. that can be used
for civilian purposes are treated as gross
capital formation.

Expenditures on weapons that cannot be
used for non-military purposes are treated
as intermediate consumption of general
government.
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Argument against the current
treatment

Weapons such as tanks, airplanes, etc. are similar to
any other fixed asset: they have long-life, can be
used repeatedly to produce security or defense
services to the nation.

The treatment is inconsistent. When weapons
purchased by police they are gross capital formation
but when bought by the military they are
intermediate goods.

Improper accounting: As weapons are recorded as
intermediate consumption or “spent” after
production. However, they may be exported in the
following periods, the accounting balance would
require recording them as negative intermediate
consumption.

The treatment is inconsistent with public sector
financial accounting.
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AEG recommendations
Military weapon systems are treated as fixed assets if
they are themselves used repeatedly, or continuously,
in processes of production for more than one year.
 Military items that are essentially designed for use on a
single occasion should be treated as materials and
supplies inventories. Items such as bullets, bombs,
grenades, and torpedoes are designed for a single use,
and although durable, cannot generally be thought of
as items that are used continuously in production.
 However, some single-use items, such as ballistic
missiles, may provide an on-going service of deterrence
against aggressors and therefore, meet the general
criteria for classification as fixed assets.
 In addition, gross capital formation and assets should
be divided into two groups: military and non-military
ones. It is important to do so since for economic
analysis one would want to link non-military gross
capital formation to long-term economic growth but
one would not expect increase in military gross capital
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formation to lead to long-term economic growth.

Implications of the recommendations

The recommendation would move
government final expenditure on
weapons to government gross capital
formation. In this sense it would not
change GDP.

However, GDP will change by the
value of consumption of fixed capital
calculated on the military assets.
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Thank You
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